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Proposal to National Multi-Donor Trust Fund: Sudan Micro-enterprise Development

Proposal to National Multi-Donor Trust Fund: Sudan Micro-enterprise Development. Government of National Unity: Central Bank of Sudan Ministry of Finance and National Economy Ministry of Investment August 2006. Strategic Objectives.

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Proposal to National Multi-Donor Trust Fund: Sudan Micro-enterprise Development

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  1. Proposal to National Multi-Donor Trust Fund: Sudan Micro-enterprise Development Government of National Unity: Central Bank of Sudan Ministry of Finance and National Economy Ministry of Investment August 2006

  2. Strategic Objectives • The strategic or development objective to promote broad-based, inclusive growth. This will be achieved through the sustainable growth of microenterprise in Sudan, including its profitability, asset growth, and formalization. • The project has four supporting objectives: • To alleviate policy impediments to formalization; • To catalyze the provision of microfinance on a commercially sustainable basis, • To increase transfer of skills to the small scale and informal private sector through business development services and linkages to larger firms • To create a public-private partnership for low-income housing provision.

  3. Component 1: PolicyReducing Barriers to Formalization • Business is the main way out of poverty. • But informal sector is not registered, faces harassment, lacks access to finance and competes for low-wage temporary work. Asset of the informal sector not eligible for secured financing. • Large and growing informal sector due to IDPs caught in a poverty trap. Source: Voices of the Poor, D. Narayanan, World Bank 2002

  4. Informality is partially a result of excessive procedures A Larger Informal Sector More Corruption ARE PAN RUS LBN ARG VEN SAU BOL GEO ECU SER PER MEX TUR PAN KAZ GTM CMR URY IRN AZE DZA SYR AZE IDN ZWE THA UKR ROM BOL THA ZWE COL KEN ALB ITA GTM HRV BLR BIH TWA HND TZA BRA KOR NGA ARM DOM PHL BLR CIV GEO UKR NGA LVA JAM PAK MDA HND NIC RUS UGA CZE MYS NER TZA ZMB VNM MDG PER BGR EGY SVK GRC BRA KGZ JPN BEL YEM LVA BFA LTU KAZ LKA UZB CHN PHL BGD ZMB ARM HKG Corruption FRA COL POL ARE TUN IRL JOR ITA Informal Employment JAM NIC ZAF MDA LBN HRV BEN VEN GRC SEN SEN ISR IND BWA URY BGR USA BEL SVN HUN KOR MEX CIV TUR UGA DEU MAR EGY MYS ROM DZA LKA NOR DOM ESP LTU ECU ISR BIH ARG SVN SWE DNK POL MLI ALB PRT NER KGZ ZAF FIN GHA GHA MDG MLI MOZ PAK PRT MNG AUT CRI HUN HKG TWA MWI NPL DEU BFA NOR BGD CAN NPL IRL FRA CMR CRI ESP ETH AUS KEN UZB SER MAR SGP CHE NLD JPN BWA SAU GBR CHL CZE CHE AUS USA AUT SVK NZL GBR TUN ETH YEM JOR DNK IRN IND SYR NLD MOZ CHL CAN SGP SWE IDN MWI FIN MNG CHN NZL VNM Procedures to Start a Business Procedures to Start a Business Source: Doing Business 2004 Note: Partial scatterplots controlling for income per capita. Relationships are statistically significant at 5% level.

  5. Component 1 Will focus on removing Legal and Policy Impediments to Formalization • Informal Economy Study • A need to better understand informal sector. What are the barriers to becoming formal? What are the sources of social capital and traditional legal systems? What economic activities undertaken? Which can become viable sources of growth? Sources of market information? • Regulatory Streamlining • Building on FIAS and informal economy study, the component would finance legal and institutional reforms to reduce barriers to becoming formal. • Asset registry • The design of a database, community interface systems, community outreach in order to begin to register the business assets of economically-active poor to be security for loans.

  6. Component 2: Microfinance • Bank of Sudan has engineered recovery through FDI consolidation • Despite increasing deposit and credit growth, smaller firms still find it difficult to obtain credit, particularly medium term • But microfinance relatively under performing. Few banks able to achieve 10% microfinance policy target. • Microfinance vision now drafted – to be presented September 25th 2006

  7. Component 2: Led by Central Bank of SudanWill focus on establishment of sustainable microfinance • Microfinance Policy Advisor • Establishment of Office of Microfinance Policy in Bank of Sudan • Financial sector legislative specialist • To support enactment of key financial sector laws and the publication of new microfinance licensing procedures. • Microfinance units of existing commercial banks (“Downscaling facility”) • Technical assistance packages to existing, sufficiently capitalized commercial banks to help develop microfinance units. Training for loan officers, organizational and strategic support, assistance in product development, information systems design. • MFI Institution building program (“greenfield”) • Subordinated debt up to $800,000 for new microfinance institutions wishing to locate in Sudan, meeting criteria of Office of Microfinance Policy. After establishment and successful operation, debt convertible to equity.

  8. Component 3 Led by Ministry of Investment will focus on SME Capacity and Linkages • FDI has grown 223% since 2002. Banking, energy, retail, food sector • But insufficiently linked to local economy and small investors

  9. Component 3 subcomponents • Entrepreneurship awareness building • To allow rural and urban poor to become aware of microenterprise opportunities. • SME investment capacity in Ministry of Investment • Domestic investment facilitation program. • Monitoring capacity to understand impact of investment on domestic sector. • Administrative investment reforms • Building on FIAS study, to build government capacity to serve domestic investors by reducing adminstrative barriers • Linkage Development Fund • Technical assistance facility to enable domestic firms to serve as suppliers to foreign invested firms (linkages) • Improve cost, quality and delivery terms with techical help of foreign company’s purchasing department/supply chain manager.

  10. Component 4 – to be undertaken in Phase 2 - Self-Help Housing Pilot • The lack of assets of poor contributes to poverty trap • Economically active poor to be targeted for emergence from poverty • Home ownership is one of the key ways to build assets, which may then be used as collateral for a business.

  11. Component 4: Self-Help Housing Pilot • A public-private partnership to build housing assets of the poor, based on Botswana, Sri Lanka, Aceh and Mexican self-help housing. • Land plots contributed by state government • Project provides for a competitive process to provide packages of self-help materials that are provided to qualified families. Qualifications include 20% down payment on cost of materials. • Materials, design, and supervision. • Labor contributed by community, with small payments from family. • Project may also provide a mortgage for 80% of cost of materials.

  12. Project management structure PSD Steering Committee CBOS, Ministry of Finance + all relevant Min/Agencies Policy Guidance Bank of Sudan Dr. Sabir Hassan, Governor Executing Agency Project Coordination Unit Procurement Monitoring & Evaluation Project Mgmt Units Min Finance Barriers To Formalization CBOS Microfinance Ministry of Investment Capacity Building

  13. MTDF Request

  14. Government Contribution

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